Federal Reserve policy makers saw "substantial" risks to the slumping economy last month as they cut the benchmark interest rate to a record low and pledged to expand emergency loans if necessary.
Central bank officials believed ''the economic outlook would remain weak for a time and the downside risks to economic activity would be substantial,'' according to the minutes of the Dec. 15-16 Federal Open Market Committee meeting released today in Washington. Some officials saw "the distinct possibility of a prolonged contraction" stemming partly from stresses in financial markets.
Some policy makers last month saw "significant risks that inflation could decline and persist for a time at uncomfortably low levels," the minutes said. Price increases will probably "continue to abate because of the emergence of substantial slack in resource utilization and diminishing pricing power."
U.S. employment fell by 500,000 jobs in December, bringing last year's decline to 2.4 million, the most since 1945. President-elect Barack Obama yesterday called for a record stimulus to prevent the recession from deepening. His plan aims to create or save 3 million jobs and may cost about $775 billion.
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